Author Randal O’Toole warns that restrictive urban planning causes housing bubbles

Randal O’Toole, Cato Institute Senior Fellow and author, spoke at the Houston Property Rights Association luncheon in October on how urban planning caused the bubble of inflated home values. Mr. O’Toole has recently written a book called Best Laid Plans in which he calls for the repeal of federal, state and local planning laws. He says these laws overregulate and stifle economic development around the nation’s urban areas.

O’Toole said the current trend today is for “smart growth,” which attempts to restrict urban development to the center of the city and discourage growth in the fringe areas. The first “smart growth” planner, he said, was Queen Elizabeth I who drew a line around the city of London in 1580 and decreed that there be no construction outside that line. But construction did take place outside the line, and in 1947 the British Parliament enacted the Town and Country Act that put green belts around every major city in England, preventing construction outside these lines. That raised the value of housing within the city so much that a 5’ x 10’ house in London recently sold for $933,000. The situation is so bad that the Bank of England is calling for a repeal of the planning laws so that people can have affordable housing.

He explained that the U.S. did not adopt growth management planning until the late ‘60s and ‘70s when Honolulu and San Jose drew boundaries around their cities. The result was high density housing on one side of the urban growth boundary, and vacant, unusable pasture land on the other. Other California cities and counties eventually adopted growth management. He said that the San Francisco Bay area has eight counties and only 17% of the land has been developed. “The result is that it not only makes land and house prices more expensive, it makes those prices also much more volatile, higher increases when the economy is moving and bigger drops when the economy is declining.” For this reason California has had big housing bubbles in 1980, 1990, and in 2006. “Each successive bubble is bigger than the last. The prices today are out of sight.”

The state of Oregon requires that all cities have an urban growth boundary around them. O’Toole says that the state law will not allow anyone to build a house outside of the boundaries unless they own 80 acres, farm it, and have earned $80,000 on it in the last three years. If the land is not already owned, no home can be built on it. “Planners have put so many obstacles in the way of developing land outside the boundary,” O’Toole says, “that it will probably never be developed. But every time government draws a line it is a moral imperative and someone benefits from it.”

He says that Portland is expected to grow by 60% and all of it will only be allowed inside the growth boundary. “Neighborhoods within boundaries were single family houses. Now they have been removed for multi-family housing. It is minimum density zoning. If you have a single family lot you must build multi-family housing. If your house burns down you are not allowed to rebuild it as single family. A 1400 sq. ft. house within the city sells for more than a quarter of a million dollars.” He says planners there encourage the building of four and five story condos and apartments to increase housing within the urban boundary. High demand for housing within the city causes the prices to rise and housing becomes unaffordable for lower income families who are forced to move to areas far from the city.

The real danger is growth management at the federal level, according to O’Toole. He says the Urban Land Institute, the Center for Clean Air Policy and others believe cities must be forced to grow at higher densities to stop global warming. They reason that since cars cannot be made efficient enough to meet greenhouse gas emission reductions, people must live in higher density areas to drive less. He said the secretary of the Department of Transportation has stated that we must have a policy to coerce people out of their cars.

But O’Toole disagrees that discarding the personal automobile is necessary to reduce emissions. In fact, he says, cars are becoming more fuel efficient and federal mandates will make them even more so in the future. Transit systems are expensive and are actually not as efficient as cars. “The average car is as efficient as light rail. What will save more energy, getting people out of cars and onto light rail, out of their SUV’s onto buses? Or getting people out of current cars and into cars that are more fuel efficient?”

O’Toole says that restrictive growth management has resulted in compact development that helped to create the housing bubble. Unless these planning laws are repealed in certain states and avoided in others, the next housing bubble could be more devastating than this one.

For more information on Randal O’Toole go to http://www.cato.org/people/otoole.html.

(The Banner, November 9, 2009)